Home Interest Deduction Interview

[TryingToUseTT]

I need some clarification on two things during the Home Interest Deduction "Interview".

1)  On the "Tell us about hour you've used this loan" page, there is a check box that says "This loan was paid off during 2020".  Since my first loan was paid off (I refi'd twice this year), I checked it. Then is says "Since you paid off this loan in 2020, enter the final balance of your loan at the time of pay-off in the filed above for December 31 value.  Logically, you should enter zero because it was paid off, but then why the previous statement to enter the final balance? 

Would that be the final balance before the loan was paid off?

2) Then it asks, "When did you make your final payment?"

There are 3 possibilities for me this year.

A)  The last scheduled regular monthly payment.  (11/17/202)
B)  The origination date of the next loan (box 3).    (12/01/2020)
C)  The acquisition date of the next loan (box 11).   (12/7/2020)

I have tried every combination and there is the known issue that it cannot calculate the average balance correctly.  Regardless I would like to answer these items correctly.  Please let me know the correct way to answer.  Thank you.

[ReneeM7122]

For enter the final balance of your loan at the time of pay-off in the filed above for December 31 value, you should put the balance that you owed before the loan was refinanced.

For When did you make your final payment, you would put the date that the new bank paid the first loan off and then gave YOU the new loan.

Take a look at your 1098 forms to see whether you need to enter the acquisition or origination dates.

The mortgage origination date (Box 3) on Form 1098 is the date on which the loan is funded, usually the date you closed on the property and signed the mortgage deed.  It's the date the mortgage originated with the original lender. 

The mortgage acquisition date (Box 11) is the date that the reporting lender acquired the mortgage. 

If you have to enter multiple 1098 forms, please read the following for important information:

How do I handle multiple 1098 mortgage forms?

If you have multiple 1098 mortgage forms, you’ll enter them one at a time. After going through the steps with the first one, you can add a lender when you get to the Mortgage deduction summary screen. (In the case of a refinance, it's best to enter the 1098 from your original loan before the 1098 from your refinance.)

But, if they're both from the same lender, and one of them has the “Corrected” checkbox marked at the top, enter the corrected 1098 and discard or shred the other one.

What do I do if I have multiple 1098s from refinancing my home debt?

If your total home debt is under $375,000 ($250,000 for married filing separate) there is nothing new for you to do in 2020. Enter each 1098 as you normally would.

Home Debt Over $375,000

Under tax law, you are limited on the amount of home interest you can deduct. The limit is based on the loan amount and date of the origination of debt. We want to make sure we calculate this correctly for you. 

If you refinanced last year, you’ll have a Form 1098 from your previous lender and one from the lender you refinanced with. You’ll need both forms. 

Follow these steps to enter your mortgage information:

1. Gather all of your 1098 forms related to your refinance (the form from your original lender and the form from your new lender)
2. Grab a calculator and add together the box 1 amount from each form. Enter the total in TurboTax as Box 1 Mortgage interest.
3. Add the Box 5 amount from each form and enter the total as Box 5 Mortgage insurance premiums. (If you weren’t required to pay mortgage interest, these boxes will be blank on your forms and you won’t enter anything.)
4. Add the property tax paid from each form and enter it in the Property (real estate) taxes box.

Next, finish adding info for boxes 2, 3, 7, and 11 using Form 1098 for the original loan.

What if I have more than two 1098s?

You should combine all of the 1098s directly related to the refinance and enter it as one 1098.  An example of this is if you refinanced two loans into one loan. Any 1098s not directly related to the refinance should get entered separately.

What if I paid points?

Points on Loans Paid Off in 2020: Enter the points on your 1098 you have started and mark you paid off the loan when promoted.

Points on Loans on New Loans: You will want to enter a separate 1098 to cover these points paid. When prompted, enter 0.00 for Boxes 1, 2, 5, and the Property (real estate) taxes box, and checkbox 7, as you’ve already entered the details on your first 1098. For Box 3, add the date in 2020 when the loan originated.

[TryingToUseTT]

It is still not clear for me what the answer is to, "When did you make your final payment?"

B)  The origination date of the next loan (box 3).    (12/01/2020)
C)  The acquisition date of the next loan (box 11).   (12/7/2020)

[ReneeM7122 · Accepted solution]

The mortgage origination date is the date the mortgage originated with the original lender. This is not the date you made the final payment.

The mortgage acquisition date is the date that the reporting lender shown on the Form 1098 acquired the mortgage.  Use this when answering the question, "When did you make your final payment?"

[TryingToUseTT]

My first refi 1098 is blank for the acquisition date.  So for my loan that I entered 2020 with (before I refi'd), do I just use the ordination date of the refi for the final payment of the loan that entered 2020 (and was subsequently refid)?

[DMarkM1]

Yes.  The origination date is the funding date for that loan.  That is the day the old loan was paid off.  

[TryingToUseTT]

I do not know if the recent changes to TT fixed the issue, but I found a method that uses the program as intended and:

• does not involve combing 1098s
• does not involve involved editing in forms mode
• does not involve in changing data that is reported on the 1098s.

I had further complications because I had taken money out over the years for non-house reasons so that partition of the interest should not be deducted.

Here is what I did. 

I entered the lenders in chronological order.  After every lender, I went into Forms view just to verify I was getting the numbers I expected.  The forms I checked were the Ded Home Mort form and the individual lender worksheets.

In my I had 5 1098s.  They were:

• The original loan that I started the year with
• My HELOC
• My First Refi of the year
• A bank transfer of my first Refi to another lender.  This was not my decision and I did not authorize it.  (It is standard practice of the lending industry)
• My 2nd Refi of the year.

Many have said to combine 3 & 4.  This is not necessary if you enter the data correctly. 

Entering data in #4 is confusing because 3 & 4 have the same origination date.  Yes, you should enter the same date for both.  The key is that #4 has an acquisition date.  That is the date that tells TT when that loan servicing was transferred from #3 to #4.

Another confusion thing was the final balances.  If the loan was paid off via refi, the final balance is the principle that was transferred over to the new loan.  You think it would be zero, but if you read the TT interview it tells you to put the last payment, which means the principle that was moved over.  TT knows how do deal with it, because you should have checked the box that the loan was paid off.

As a point of clarification, the answer to “When did you make your final payment?"  It is the origination date of the next loan in the next loan’s box 3.

Finally, a sticking point for me was because I did not use all of the loan proceeds to buy or improve the house (i.e., I have taken money out over the years for other reasons).  When it says the loan, it means all the loans combined (the original and all refis).  It is an aggregate number. 

Let’s say that my previous loan was 400,000, but only 300,000 was used to buy the house or improve it.  Then I refi’d and took out 10,000.  The amount I would report on the refi loan that I used to buy or improve the house would be 310,000 (not just 10,000).  Once again when it says loan it is referring to all previous loans on the house.

Following these methods gave me an accurate tax return without combing or changing data. 

Good luck, it took me hours to figure this out, but the key was checking the forms as I went along every step of the way.